Sahm Adrangi, founder and Chief Investment Officer of Kerrisdale Capital, elaborated on the firm's perspective during an interview. According to Adrangi, the Bitcoin (BTC) mining industry is expected to become obsolete within five years. Adrangi described Bitcoin mining as one of the “stupidest business models” Kerrisdale has encountered in his 15-year short selling history.
Adrangi criticized the industry for negligible barriers to entry that allow companies worldwide to buy ASIC miners from China, set up operations in regions with cheaper electricity, and undercut U.S. miners.
He emphasized that US-based Bitcoin miners are not profitable and survive primarily by issuing more shares. “They're not making money. They're just issuing shares to pay themselves, you know, healthy stock comp and buy more ASICs,” he said, calling the industry “a scam.”
Kerrisdale's report specifically targeted Riot Platforms, but Adrangi noted that he plans to publish similar criticisms of other companies in the industry. Adrangi highlighted the unsustainable nature of Bitcoin mining, comparing the industry to a sort of bitcoin industry boom and bust of 2017-2018, when CEOs often resorted to dubious practices to maintain unsustainable business models.
In response, Riot Platforms issued a statement rejecting Kerrisdale's characterization of the Bitcoin mining industry and the conclusions of her report. Riot expressed confidence in their ambitious 2024 growth plans and their potential to deliver solid financial performance.
However, Adrangi evaluated Riot's growth plans as merely diluting shareholders' shares and stated that the company has diluted shareholders by 18% this year. Adrangi predicts further dilution as the company continues to invest heavily in capital expenditures without generating commensurate returns.
Adrangi also touched on the environmental impacts of Bitcoin mining, arguing that the practice is wasteful and harmful. He noted that countries such as China have deported Bitcoin miners due to their environmental footprint and questioned the appropriateness of Bitcoin mining operations within US borders.
*This is not investment advice.
